Mitsubishi UFJ's plans drag on Japanese banks

TOKYO (MarketWatch) -- The decision by Japan's largest bank to go to market with Japan's largest-ever share sale is dragging not just its own stock lower, but also those of the country's other megabanks.

Shares of Mitsubishi UFJ Financial Group dropped to their lowest point in more than six weeks Thursday, a day after it confirmed plans to issue about 1 trillion yen ($11.2 billion) in new shares.

Most other major banking firms in Tokyo followed Mitsubishi UFJ's lead to post sizable declines.

"People are just really scared about capital-raising exercises," said Brett McGonegal, managing director at Cantor Fitzgerald.

And analysts expect shares of MUFG to continue lower in the near term, despite the bank's announcement Wednesday that its fiscal first-half profit rose 52% from a year ago. See MUFG earnings story.

Shares of Mitsubishi UFJ Financial Group (8306)
MTU, -1.92%
fell 3.3% to 468 yen in late morning trading, after touching an intraday bottom of 456 yen, the stock's lowest intraday price since Oct. 5, according to data from FactSet Research.

Overall, the Japanese megabanks "are the focus, and they are not giving the street enough intelligence about how they will bolster Tier 1 capital," McGonegal said.

He said selling off shares in banks with likely capital needs has proved profitable recently, though he added that this play is "not a new idea by any stretch, and the trade is getting crowded."

Ongoing pressure

In a note to clients Thursday, analysts at Goldman Sachs said they expect MUFG's stock price to remain under pressure in the near term, "given the weight of the capital raising," which is equivalent to 27 days of trading volume.

MUFG had already reported that it planned an equity issue of around 1 trillion yen, so the news itself came as no surprise, Credit Suisse research analyst Shinichi Ina said in a research note.

But "the fact that it has chosen to opt for shelf registration, rather than actually deciding on the issue, itself comes as a surprise."

And the lack of a firm issue date "could cause some uncertainty in terms of the supply/demand balance," Ina said.

The losses among financials Thursday put further pressure on Japan's benchmark index, which was losing ground on the heels of weakness on Wall Street. The Nikkei 225 was 1% lower by late morning trading in Tokyo.

"Uncertainty has taken over in Japan and that, coupled with stocks trading away from fundamentals, is having a crippling effect," said McGonegal.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.